While the pricing at $199 looks disruptive for what seems to be
the iPad’s most important rising challenge, the Amazon Fire – it is important to note that it
could fuel further fragmentation in the tablet market—given it
represents yet another platform. While compatible with Android,
the Apps work with Amazon products. The more fragmentation, the
better, says Apple, since that could drive more consumers to the
stable Apple platform. We believe that Apple will get more
aggressive on price with the iPad eventually but not compromise
the product quality and experience.

Apple has a point. Amazon's Fire is based on Android, but looks
totally different. Android-based apps for the Fire will probably
look out of place initially.

However, in the long run as it sells millions and millions of
Fires, developers will see it as a third platform and start
building custom apps for Amazon.

And, the bigger picture for Apple is that the Fire, at $199,
severely undercuts the iPad. If you were on the fence about
buying an iPad, there's a good chance you'll go for the Fire,
since it's so cheap.

All that said, there's one huge, honking caveat with the Fire: No
one has really tested it yet. The thing could be awful. In which
case, Apple has nothing to worry about.

Disclosure: Jeff Bezos, CEO of Amazon, is an investor in Business Insider.